How to Make Money Renting Property?
Most people think that investing and maintaining a property is simple one-time investment that will reap benefits automatically without any efforts/improvements. Is this a right assumption?
Absolutely not!Rental Income, be it a small flat or a large house. The time, effort and money invested in renovating, upgrading can add a lot of value in increasing rental or sale values.
Expenses of renting property can be deducted from your gross rental income. The rental expenses are generally deducted in the year you pay them.
Most people who have bought or invested in a property recently or in the past will tell you that any rental property – a small or large flat, house, etc needs to be maintained regularly.
The time, effort and money invested in regular maintenance, renovation and improvements can add a lot of value and aid in increasing rental or sale values. The amount received beforehand is referred to as advance rent. From the point of financial benefit, rental property stands at the top of assets which one should own.
People buy a property either
- For their own use (living in it and saving on rent)
- For investment (renting it out)
Remember the above reasons (1 & 2) are not mutually exclusive. Many people use and benefit both ways. In practical situations people who live in the rental property, rent it out at a later stage when they move to some other city for a job or career 0r business or other reasons.
There are also cases where people buy for investment (renting out), but later decide to stay or occupy the house due to professional or personal reasons and convenience.
For example Mr.Thomas, a mid-level manager in a leading insurance company bought a property in Chennai and lived there for two years. Later his company transferred him to Hyderabad for a top-notch assignment. Due to this he had to rent out his property and move to Hyderabad.
The Rent Dilemma
Mr. Thomas was charging Rs.10,000 for his two bedroom flat located near for the past one year. The apartment community was located in Sholinganallur, a kilometre off Old Mahabalipuram Road (IT corridor of Chennai).
On his recent visit to Chennai he discovered that some of the flats or houses nearby command a rent of Rs.15,000. Thomas decides to hike the rent in a few months.
In June 2012 his tenant was planning to vacate and Thomas decided to rent it out. But alas many people came and saw the house but no one was interested or keen to pay Rs.15000 per month for this apartment. Why?
There could be two issues
- The rent is too high
- Or the property do not match the expected rent.
Whenever you sell or lease a product the pricing should be right (not too high or too low), and the product features should be good enough to justify such a price.
Thomas meets his friend Mr. Joel, who provides him some tips which we will see below.
Investing in rental property improvement
There are various things in the house that you can improve to make it attractive for prospective tenants. A few points that you need to bear in mind are
- The cost of improvements should be justified so that you can recover your investment within a reasonable time (but invest with a long-term perspective)
- The type of improvements needs to be suited to the taste or requirements of your tenants
- For example a middle class tenant may not care a damn about bath tubs or electric chimney. However, if you provide good wardrobes, curtain rods, geyser, you can definitely highlight these as value adds to the property and justify the above average rents.
- You can increase the rent to a reasonable level, keeping in mind the market rates
- The improvements are long-term investments which will help preserve the quality and life of the property for a long term – so don’t ignore or postpone it.
What kind of improvements should I do to Get Good Rental Income?
There are various improvements that a property might require right from the quality of taps to the plastering on the walls.
In a new property the walls and paint look fine, but after a couple of years you will find the plastering gradually coming off in some areas of the walls.
If the original plastering was not good you will find dozens of areas where the plastering is coming off. If the wall painting is old then you can plan and refurbish both plastering and painting in one shot.
Some doors or windows may have to be checked for various issues. For example the latch or the padlock may not work. In some cases the door may not align within the frame particularly due to the effect of winter or rainy season. Similarly the window glass or frame might be damaged.
As a small tip, I would suggest home owners to consider installing plastic doors for bathrooms or toilets because they are durable, strong and require less maintenance. The normal wood doors get soiled (due to water) or get older and damaged.
Unlike the West most homes in India are generally not fully furnished. You have a combination of unfurnished to semi-furnished, barring a few high-end properties which might be fully-furnished. For most middle and upper middle class renters, a house with decent amount of furnishing would be attractive compared to a house with no furnishing.
The basic essentials that people (renters) look for include
- A couple of wardrobes or more to keep their things
- Provision for rods for installing screens
- Hooks or hangers for clothes
- A decent kitchen with sufficient shelves, drawers, etc. (some people call this ‘modular kitchen’ and it is definitely a good selling point)
Basic electric fittings such as fans, lights, etc. are a must. However, a water heater may be a plus but in today’s times most owners provide this. Adequate number of switches and plug points at appropriate locations is important.
These facilities also help attract or retain tenants, and would also be useful for your own use if you decide to stay in your property in future.
If you are building a house/flat its critical to choose the right type of flooring, which is durable, easier to maintain and looks good too. Some experts recommend the use of large tiles 1.5” X 1.5” or larger, which is convenient compared to the smaller 1”X1” tiles.
The smaller tiles are difficult to install and consumes a lot of time. If the smaller tiles are not aligned or laid properly they might crack, however these issues can be avoided or minimized with larger tiles. Similarly the type of tiles used is important. While white and light shades are good for reflecting lights, they have drawbacks like making dust, dirt, etc. too prominent.
While darker tiles can hide dust, dirt and remain durable they might make the room darker, so a balanced choice needs to be taken here.
This is one of the most important areas people tend to ignore. A leaking tap or a defunct shower gives a bad impression. Even some of the most unexpected issues can actually irritate tenants – for example failure of the toilet flushing mechanism. To avoid these surprises, make it a habit to check everything once a tenant vacates.
Its important to spend a few days or weeks to check and rectify all plumbing issues. Generally taps may not work or may show signs of new issues which have to be handled on time. If it’s a minor issue you may have to just change the washer, else replace the entire tap or change the model of the tap if its too fast or too slow.
Once a tenant leaves, spend some time to do the necessary repairs and maintenance, because the loss or investment at this stage can save you a lot of time and energy in future. This can also help you avoid frequent complaints from tenants and frequent trips to the property and fetch you a good rental income.
These are simple miscellaneous add-ons which can be added depending on how you want to project the house or based on tenant requirements. It can include:
- Addition of mirror/mirror with cabinet
- Nails or provision for nails (helpful for hanging pictures, photos, scenery, etc)
- This is also important to ensure that your tenant does not bore nails in the wrong areas in the house
- Installation of nets/mesh on the windows (to restrict dust/mosquitos)
- Providing ropes for hanging clothes (sounds too trivial but just for a change – try washing and drying clothes by yourself – then you know why its important). Despite washing machines and dryers most people still have to dry clothes in the balcony or the terrace.
- Some simple kitchen improvements such as a hole for gas pipe, replacing sink pipes, taps, etc.
A home is a long term asset, which also needs a long-term commitment. Recently I visited an apartment by a leading builder in a prime location.
The property looks excellent with the most sophisticated amenities such as swimming pool, landscaped gardens, etc., but the apartment interiors were poorly maintained – the exhaust fan in the kitchen is coming off, little or no wardrobes or shelves, lack of ventilation, primitive electrical fittings, etc.
Over and above this the tenant was also giving negative feedback about the owner. So this clearly shows how important it is to maintain the house and keep improving it continuously. A well maintained rental property not only commands better rents, but also a longer life, healthier environment to live in, and will be an excellent asset that multiplies in value over the long-run.
Conclusion – Rental Income
Rental property, from a financial standpoint, stands at the top of the list of assets which one should own, as it promises a great deal of benefits.
If you want to become a property millionaire and to get rental income from rental property – remember to maintain it well to retain/sustain your property value. The market value of the property or services should be included in your rental income if the same is received instead of money as rent.